When it comes to UK telecommunications, BT Group (LSE: BT.A) stands as one of the most recognisable names in the sector. However, over the past 12 months, BT shares have fallen over 8%, currently sitting at 117p. At that price, I think the stock could be a solid addition to my portfolio. Let’s dig into some of the reasons why.

Attractive valuation

One of the most enticing aspects of BT shares is their remarkably low valuation. Currently trading at a price-to-earnings (P/E) ratio of 6, the shares are priced much lower than the FTSE 100 average, which hovers around 14. This disparity suggests that BT’s stock could be significantly undervalued, offering me an attractive entry point.

A household name

The company is a household name in the UK, and its brand recognition is a valuable asset. With a legacy spanning over a century, BT has built a reputation for reliability and innovation in the telecom industry. This strong brand presence translates into a substantial customer base and gives it a competitive edge.

In addition to this, BT has made strides in expanding its 5G network coverage across the UK. Currently covering over 1,000 towns and cities across the country, BT’s 5G network positions it as a key player in the race for faster and more widespread connectivity.

This not only enhances its service offerings but also opens up opportunities for revenue growth, particularly in the emerging 5G-driven ecosystem. As the demand for high-speed internet and low-latency connections continues to rise, the firm’s substantial 5G network coverage places it in a favourable position to cater to these evolving consumer needs.

Macroeconomic headwinds

While BT has many strengths, it’s not without its challenges. The company currently has just under £20bn in debt on its balance sheet. Although UK inflation has slowed over the past 12 months, it’s still putting pressure on the country’s economy. In a climate characterised by inflationary pressures and rising interest rates, servicing such a substantial debt load could become increasingly challenging.

High inflation erodes the real value of debt, and higher interest rates can lead to increased interest payments, affecting the company’s profitability and cash flow. If higher debt repayments materialise, it could damage BT’s bottom line. What’s more, it could limit its ability to invest in new growth initiatives and adapt to changing market dynamics.

The bottom line

In my opinion, BT shares present a compelling investment case with several notable advantages. On a P/E basis, the stock is priced well below the FTSE 100 average. And its strong brand recognition across the UK is undeniable. In addition to this, its impressive 5G rollout has already made significant strides towards complete UK coverage. I’m willing to overlook the debt issue given its numerous strong points. And as such would consider adding it to my portfolio today.

The post Should I buy BT shares for my portfolio at 117p? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The BT (LSE: BT-A) share price fell 5% this week as the release of its latest results saw shareholders hurry to offload their shares.

The FTSE 100 stalwart has struggled in recent years. And with the stock down 19% across the last 12 months, this epitomises the gloomy period that its shareholders have had to suffer. Five years ago, a share in the telecommunications giant would have cost me just shy of 210p. Today a share costs just 145p.

In true Fool fashion, I’m always on the lookout for stocks I can snap up for cheap and hold for years to come. So, could BT be my next target? Let’s explore.

BT update

The main reason for the tumble in the BT share price this week was the release of its full-year results. For the 12 months to 31 March, BT posted revenue of £20.7bn, beating expectations of £20.5bn, while adjusted EBITDA rose by 5% to £7.9bn. Yet despite this, its free cash flow had fallen 5%, to £1.3bn. Pre-tax profits also nosedived 12%.

However, the headline that largely caught investors’ attention was the major job cuts that the business plans to take in the years ahead. By the end of the decade, BT’s workforce will be reduced by over 40%, with this including BT employees and third-party contractors. This move feeds more widely into the firm’s cost-saving initiative, of which it announced it had saved £2.1bn towards a £3bn target.

With the stock falling 8% following the announcement, investors clearly didn’t take kindly to the news.

Should I buy?

Regardless of the news, does this fall present an opportunity for me to snag up some shares?

Well, there are certainly a few reasons why I like the look of BT. To start, the stock offers a substantial dividend yield of around 5.6%. With inflation set to continue to persist in the UK in the months to come, this offers me a hedge against high rates, to a degree.

The stock also looks relatively cheap, with a price-to-earnings (P/E) ratio just shy of eight.

However, I do have some major concerns with BT. The business finds itself sitting on a monumental pile of debt. And to make matters worse, a further £850m was added in the last year following pension scheme contributions. With the pile now sitting at nearly £19bn, this poses a major risk for BT. Further, with interest rates at highs not seen in years, this debt may become difficult to pay off.

BT also faces headwinds such as the impacts of the rising cost of living. Recently it was reported that one million people cancelled their broadband in the last year as inflation continues to squeeze people’s budgets. This drop in demand will likely have an adverse effect on BT in the months ahead.

So, while BT shares look cheap, I won’t be buying any right now. Its low P/E ratio and above-average dividend yield are certainly attractive. However, with issues such as its massive debt and uncertainty surrounding future job slashing, I’m steering clear of BT for now.

The post The BT share price fell 5% this week! Is now my time to buy? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Christmas is coming and if I have money left over from my shopping, I’d love to spend it on more bargain dividend stocks for my portfolio.

Dividend stocks aren’t just for Christmas, of course. They’re for life. Any shares I buy today I’d hope to hold to retirement and beyond.

I’m on the hunt for dividend stocks

I’ve enjoyed some success from buying beaten-down FTSE 100 stocks lately, and I can’t get much more beaten than BT Group (LSE: BT.A). Its shares are down 35% over one year, and almost 60% over five years.

Falling earnings and rising debt never make a good combination, and BT has suffered both. It also has a £4bn shortfall on its pension scheme.

Management is looking to slash £500m costs as rising energy bills squeeze margins, with plans to merge its Global Services and Enterprise units. It faces a sea of troubles, yet I would still buy it. That’s because I’m a long-term investor, and can afford to look past today’s challenges. BT shares just look too cheap to ignore, trading at 5.5 times earnings. The dividend yield is a thumping 6.8%, covered 2.8 times by revenues.

When investor sentiment turns, positive, it must at some point next year, BT could rebound. I’d like to be holding its stock when it does. 

I’m applying the same philosophy to my second FTSE 100 dividend stock, Britain’s biggest fund manager Schroders (LSE: SDR). Its share price has been knocked back by this year’s volatility, crashing 25%. Measured over five years, Schroders shares are down 22% so it’s not a one-off.

As markets fell and investors backed off, assets under management (AUM) dipped 2.7% to £752.5bn in the quarter to 30 September. I don’t think that’s too bad, given the turbulence. I’ll be watching closely for the next set of numbers, as the current stock market rally should boost AUM for the quarter to 31 December.

FTSE gives me income

Yet the quarter also saw the gilt market meltdown, which sent assets in its Solutions division crashing more than £20bn to £205bn. Despite the uncertainties, Schroders’ shares are up 10% in a month. Next year could be even better and the stock looks good value at 9.15 times earnings while yielding 5.4%, covered twice.

While I’m in the mood for risk, I’d also consider the UK’s second-biggest grocery chain, Sainsbury’s (LSE: SBRY). Its shares have also suffered a meltdown, falling 20% in the last year, while trading 12% lower over five years.

Again, it’s been climbing in recent months, as investors believe the sell-off has been overdone and fancy a bargain. Sainsbury’s is certainly that, I feel, valued at just 8.8 times earnings.

There are signs that grocery inflation is easing although I’m not putting too much faith in that, as Kantar figures show, it was still a terrifying 14.6% in November. Sainsbury’s can’t easily push those costs onto cash-strapped customers.

Throw in the threat from Aldi and Lidl and things look even tougher. Yet I’d still buy Sainsbury’s for its 5.84% yield, covered 1.9 times by earnings. I’ll reinvest that to buy more stock and with luck, one day shoppers will feel richer and the Sainsbury’s share price will recover. As I said, I can bide my time.

The post I’d buy these 3 dividend stocks before Christmas appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?

Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended Schroders (Non-Voting) and Sainsbury’s. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The trajectory of BT (LSE: BT-A) shares will no doubt have been leaving investors feeling gloomy in recent times.

The telecommunications giant is a FTSE 100 stalwart. And while it’s failed to excite for a while, I think its current price could be appealing. Here’s why.

BT share price history

Let’s start by assessing the performance of the stock.

Looking at the BT share price across the last five years isn’t pretty reading. Since then, its share price is down over 50%. The stock flirted with the 300p mark back then. Today, a share costs just 140p.

The last year has told a similar tale. In this time, it’s down 9%. And these losses have only continued in 2022.

The main reason for this is inflation. Rates going higher have seen investor confidence in the market go lower. While BT isn’t alone in its struggles as this year has seen a monumental amount wiped off global markets, it’s still not good news for shareholders.

On top of this, the business has also been in the news following staff strikes. The firm had been embroiled in discussions with the Communication Workers Union regarding calls for a pay rise amid the cost-of-living crisis. But BT’s offers haven’t satisfied the union.

Not all down and out

It’s clear to see BT has faced headwinds. However, I see potential with the stock.

Firstly, its dividend yield will most certainly come in handy during these times. For the year ended March 2022, its payout totalled 7.7p per share. At current levels, that equates to a 5.5% yield. And while it’s not inflation-beating, it offers me a greater hedge against inflation than the FTSE 100 average.

Another enticing factor is a potential takeover by French billionaire Patrick Drahi. He currently owns an 18% stake in the firm. And with the UK government providing Drahi an unexpected all-clear regarding his stake, this could open the door for a takeover attempt in the months ahead. This would provide the BT share price with a boost.

Of course, I don’t buy solely based on speculative factors such as a takeover that may or may not happen. You see, I also think there’s long-term value in the stock.

What I like about BT is the large infrastructure it already has in place. This provides it with some higher degree of pricing power. This was seen with raised prices for broadband and mobile contracts boosting its sales in the last quarter. With the continuous expansion of its Openreach network, which now reaches 8m homes and businesses across the UK, I think BT has solid foundations to excel.

My biggest concern is its debt. As of 30 June, its net debt stood at £18.9bn, which is a monumental sum. With interest rates rising, and with further hikes expected, this will make the debt harder to eradicate.

Is now the time?

So, is now a good time to load up on some shares?

I’d say yes. It’s been a tough year for BT. And I’d expect it to face further headwinds. While I have no spare cash right now, if I did I’d open a small position in the stock today. Its large infrastructure provides it with an edge. And its dividend yield and a potential takeover are also a draw.

The post Is now finally the time to load up on BT shares? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With inflation already above 10% in the UK. And with predictions that this figure could more than double in the months ahead, creating a passive income stream that puts my money to work doesn’t seem like too bad an idea.

Passive income exists in multiple forms. And despite what some people think, I don’t need a huge amount of capital upfront to create some sizeable returns. Here’s the plan I’m using to build a steady stream to last me for the long term.

Start early

The most important factor for me is the idea of starting early. As a Fool, I believe long-term investing is the most efficient way to put my money to work. And as a 20-something, I have time on my side. The earlier I start, the better chance I’ll have to build a sizeable pot of cash. After all, that’s the aim.

Top up my funds

Despite time being on my side, unfortunately, an abundance of money isn’t. But like I said, I don’t need bundles of cash to put my plan into action today.

What I need to do is decide how much I am willing to give up a month. And with this cash, I want to invest it continuously. By doing this, I’ll benefit from ‘pound cost averaging’, which essentially balances out the price that I buy in at.

Reinvest my dividends

Another step I’d take to maximise my returns is by reinvesting the dividend payouts I receive. From this, I can benefit from compounding. For example, if I own a stock that pays me a 6% dividend, and generates 7% growth per year, that gives me a 13% annual return. Over the course of a few years, this may not seem great. However, an initial £500 investment compounded over 30 years (the length of time I aim to invest for) would return £24,000.

What’s more, should I incorporate the monthly payments (say £30) I’d have been adding, after 30 years this amount would be around £155,000!

Pick high-quality companies

The final factor I’d consider is the quality of the company I chose to invest in.

I want to avoid assets like growth stocks as they often don’t pay dividends to shareholders. Instead, I want to pick dividend stalwarts that have a strong track record of paying out to investors in times gone by. These businesses would hopefully allow me to see growth. And, more importantly, they would keep my passive income stream running.

Some examples of these types of companies include Lloyds and BT.

There’s always a risk

Despite the above, I must always be wary that no dividend is guaranteed. These payments can be cut off by a business at any time if they choose to. I must also be conscious of the fact I may see lower returns than I expected. Both of these could put my plan in jeopardy.

Luckily, investing in multiple companies will help mitigate the risk of this happening. And by following these steps, I’m confident I could build a lifelong passive income stream.

The post Here’s my plan for building lifelong passive income! appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s been a tough year or so for investors. Red hot inflation has caused global turmoil. And with a Covid-19 hangover and the tragic war in Ukraine also weighing down on sentiment, it’s no surprise people are fearing a stock market crash.

Despite these fears, I’m staying calm. With the threat of markets tumbling in the months ahead, here’s what I’d do should the market plunge.

The story so far

Before we delve into what I’m doing, let’s start by taking a look at what’s been going on recently.

As mentioned, the reason markets have suffered this year is a result of the macro economy. Inflation has hit 40-year highs in both the UK and the US, jumping above single figures in the UK for July. And while the FTSE 100 is down nearly 3% year to date, the S&P 500 has been as low as $3,636, signifying a 23% year-to-date loss.

Despite these losses, markets made a small rebound from July following the news that US month-on-month inflation fell between June and July. Clearly, investors were beginning to regain confidence.

However, with dire predictions for inflation rates being released by the likes of Goldman Sachs and Citi, it seems the months ahead could be rocky. While Citi warned that UK inflation could reach 18%, stating that the UK energy price cap could reach nearly £6,000 by April 2023, Goldman also recently predicted inflation could peak to as high as 22% should gas prices continue to soar. There’s no doubt this would see a crippling downturn in the stock market.

Remembering my goal

So, with the threat of a market crash on the horizon, what would I do?

First of all, I’d remember how I invest. And that’s for the long term. Within the stock market there are many different types of investors, be it day traders or hedge funds. But as a Fool, I purchase stocks with the aim of achieving some healthy returns in the long run.

What this essentially means is that the turbulence we’re experiencing in the market right now shouldn’t scare me into selling my positions. Volatility is inevitable. And therefore, I need to remember that if I’m patient, my long-term plan of building wealth should bear fruit.

Grasping opportunities

With this said, this doesn’t mean that I should steer clear of the markets. And in fact, what I’d do is the opposite!

A stock market crash presents a great opportunity for me to grab some bargain companies with strong fundamentals. And should stocks fall further, I have a list of companies I’d look to add to my portfolio. This includes the likes of companies such as BT and Lloyds, who have already seen their share prices suffer this year.

Whether a stock market crash occurs in the near future is unknown. And there’s no telling to what extent inflation can continue to rise. However, with my long-term outlook and a keen eye for undervalued investment opportunities, I’m not panicking any time soon.

The post Here’s what I’d do in a stock market crash! appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like most stocks, BT (LSE: BT-A) shares have fallen in 2022. Down 11% year to date, the stock has seen its valuation fall largely due to rising inflationary pressures. Over 12 months, the stock is down 9.8%.

Regardless of the falling share price, I think that now could be a great time for me to buy BT stock. Let’s take a closer look at why.

Great value

At its current share price, BT trades on a price-to-earnings (P/E) ratio of 12.1. Although slightly above the ‘good value’ barometer of 10, it seems like a reasonably cheap valuation. When looking at BT’s nearest competitor, Vodafone, which trades on a P/E ratio of over 20, I see even more value in BT.

In addition to its value, it currently has a meaty 5% dividend, which is comfortably above the FTSE 100 average of 4. This could be great for adding passive income to my portfolio and helping me hedge against inflation.

BT is a big name in the telecoms industry, which is deemed a ‘defensive’ one. What this means is that it tends to fare well in times of economic turbulence. This is because (pretty much) everyone needs broadband, so the demand is always there. Also, due to the large amounts of pre-existing infrastructure that telecoms firms have, there’s usually less of a need for huge ongoing capital expenditure, which would increase in price with rising inflation.

There have been multiple forecasts of the UK economy entering a recession. As the economic climate worsens, stocks like BT could be in a good spot to weather the storm.

Poor results

Yet its share price performance doesn’t reflect this. Another reason why the stock hasn’t performed well this year has been due to its Q1 23 results. It reported that revenue rose 1%, but profits fell over 10% compared to the year before. A large chunk of this drop came from the group’s enterprise division, which has been suffering due to rising inflation putting pressure on B2B sales.

BT shares are also facing pressure from strike action. The Communication Workers Union (CWU) has been in talks with BT for some time surrounding pay packages. The firm had made a series of offers to the CWU, all of which were refused. Further strike action is set to take place because of this.

Strike action puts it between a rock and a hard place. If it doesn’t increase pay, operations are hindered, results are tainted, and the stock goes down. However, as it employs roughly 100,000 people, increasing pay means millions in extra costs. With thin margins, this isn’t something it can afford.

The verdict

Overall, BT shares look like a solid buy to me, especially in the current uncertain macro climate. Yes, it reported poor results and is in a dispute over pay. However, I feel the value, dividend, and future outlook of the firm outweigh these risks. As such, I’m looking to load up on BT shares at 153p.

The post Should I snap up BT shares at 153p? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

So, why is this? And is this a chance for me to buy some shares?

Why is BT down?

Why has the telecommunication giant suffered so much? Well, the obvious answer to this is inflation and investor nervousness about that. With rates surpassing 10% in the UK for July, this year has been incredibly volatile and we’ve seen untold amounts wiped off markets.

The stock has also suffered due to staff strikes. BT and the Communication Workers Union (CWU) had been locked in negotiations for weeks. And with BT’s previous offers failing to meet the wishes of the CWU, workers have been forming picket lines to show their discontent. With two further strikes set for next week, this could see BT suffer further.

Finally, the FTSE 100 firm also saw its share price fall following the release of its half-year results. While it contained positives, investors focused on the 10% drop in pre-tax profits to £482m.

An opportunity to buy?

Despite these issues, could now be a good time for me to open a position in BT?

Well, one tempting factor is its dividend yield. As its share price has fallen, its yield has been pushed up to around 5%, comfortably above the average of its FTSE 100 peers. While purchasing BT stock isn’t going to completely hedge me against inflation, this passive income stream certainly provides better value than keeping my cash in the bank.

There has also been plenty of speculation recently surrounding billionaire Patrick Drahi’s 18% stake in the firm. It was widely expected that measures would be put in place to block future purchases, or even rescind Drahi’s position. However, the UK government has given the Altice (Drahi’s business) stake in BT the all-clear.

This could theoretically open the door for a potential takeover, which would no doubt boost the BT share price.

But as the government also said that future acquisitions will be “subject to a separate assessment“, it seems Drahi may be restricted should he attempt a full takeover.

While BT reported a drop in pre-tax profits, I saw potential in the results it released. The business managed to grow its revenue for the first time since 2017, albeit by 1%. And with the continuous expansion of its already large infrastructure, such as its Openreach network, comes a degree of pricing power. After all, higher pricing in broadband and phone contracts contributed to its sales growth in the last quarter. In the volatile times we’re facing, for me this is key.

But a big concerning factor is its large pile of debt. This may hold the business back in its attempts to move forward.

However, I’d still be happy to open a small position in BT today. It does face headwinds. But with a fairly set of strong results, its stable nature, and its dividend yield, I think the stock could add something to my portfolio. The potential of a takeover is an added bonus, but I’d never buy just for that. I like to invest for the long term in businesses I believe in.

The post The BT share price continues to fall! Is this a chance to buy? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s been a rollercoaster year for holders of BT (LSE: BT-A) stock. The price has fluctuated between 156p and 200p with plenty of ups and downs. Currently sitting at 157p, the shares are down 9% year to date and an equally disappointing 8% over the past 12 months. With inflation and interest rates still on the rise, the macroeconomic situation looks pretty bleak. These factors have crushed the BT share price over the past six months and it’s fallen almost 20%. However, I’m using this opportunity to buy some beaten-down bargain stocks – and BT is one of them.

Why the shares are down

There are a few reasons why BT shares have struggled lately. First, the group released its Q1 FY23 results at the end of last month. Revenues rose a meagre 1%, but profits fell by over 10% compared to the year before. Some 7% of this drop came from the group’s enterprise division, which has been hammered by rising costs. CEO Philip Jansen highlighted the “ongoing challenges” of the current market as the primary reason for the drop in profits.

Aside from the company, the macro economy is doing BT no favours. Inflation has been skyrocketing, surpassing 10% in the UK in July. Central Bank economists are predicting these numbers to keep rising throughout the remainder of 2022. Higher inflation is being coupled with interest rate hikes, which most recently brought the UK central bank rate to 1.75%. Rising rates can deter investors from speculative assets like stocks as they can achieve a higher risk-free return on ‘safer’ assets. These recent developments are another reason why BT shares have struggled.

Moving forward

At 157p, BT shares trade on a price-to-earnings ratio of 12. On the surface, this looks like okay value to me. However, comparing it to close competitor Vodafone, which trades on a higher P/E ratio of over 20, I see good value. Coupling this with BT’s 4.9% dividend – comfortably above the FTSE 100 average of just under 4 – I’m even more attracted to the stock.

In reality, it may be even cheaper. The value of BT’s assets equates to around 90p per share. Knocking this off the current share price, the shares fall to a theoretical value of 69p. Using this figure, the P/E ratio for the shares would be just 4.8. The value really shines through when considering this. The asset-rich nature of the stock could also help me protect against rising inflation.

Why I’d buy

Overall, I think BT is a good example of a stock that has been beaten down by bearish market sentiment when not much has actually changed within the business. Not only do its pre-existing assets help protect against rising costs, but their value helps highlight the value of the shares. Considering all of this, I’m looking at opening a BT position in my portfolio.

The post BT shares have crashed: here’s why I’m buying appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

BT (LSE: BT.A) recently published its Q1 earnings. Since then, its stock has dropped by 8%. As such, the current BT share price could present a buying opportunity. However, a deeper look at the business could indicate that it’s a value trap.

Average numbers

Although both revenue and adjusted EBITDA saw slight increases, investors were disappointed to see the rest of BT’s financials worse off. With the group’s net debt seeing a £325m increase, this soured investor sentiment, as BT already has a high debt-to-equity ratio of 105.8%. The justification for this according to management, however, was higher pension contributions and slower free cash flow.

Bad numbers aside, the telecommunications company had some bright spots that are worth pointing out. For one, it managed to achieve a record number of customer connections for its full fibre broadband, with over 8m homes and businesses now connected. Additionally, BT now anticipates increasing its Openreach network to reach a further 3.5m premises this year.

The company’s Consumer and Openreach lines of business saw decent growth. Nonetheless, revenue growth from those two divisions was offset by legacy product declines and the current tough economic environment for businesses.

Aside from that, the firm also managed to finalise its partnership with Sky, which should further increase broadband coverage in the future. But most importantly, its long-awaited join venture with Warner Bros. Discovery has finally been cleared by the CMA. And despite the lacklustre numbers, management still reiterated its outlook for the year, which remained unchanged.

Possible hang ups

Nevertheless, BT still faces a number of bumps on the road. With the FTSE 100 firm no where near to resolving pay disputes with its workers, I’m anticipating further strikes to go ahead. This would definitely disrupt the business’ operations and affect its cost structure. In fact, management mentioned that it’s had to invest in contingency plans to minimise disruptions.

Moreover, CEO Philip Jansen stated that the company will be setting in price hikes for its broadband services. While this should help to mediate rising costs across the board, BT has intense competition to worry about, and risks losing customers to its competitors. This is because a join venture (JV) between Virgin Media O2, Liberty, and Telefonica are hot on its heels. The JV plans to invest £4.5bn to connect a further 7m homes. This would bring Virgin’s reach to 23m by 2027.

Close call?

That being said, the firm still faces strong headwinds that makes its outlook less convincing. BT seems to be reliant on its Consumer and Openreach divisions to maintain profitability for the time being. If inflation continues to run rampant, achieving its FY23 outlook is going to be a very close call.

So, do I think the current BT share price is a bargain? Not in my opinion, as I think it’s more of a value trap. Its 4% dividend yield could be a valid reason for me to invest, but I’m afraid that BT’s increasingly high levels of debt are going to hinder its earnings potential.

The post Is the BT share price a bargain or value trap? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

John Choong has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.